Gyngell upbeat on future of free-to-air television

David Gyngell is the closest thing Australia has to television royalty. But the Nine Entertainment boss will soon face the sentiment-free glare of the sharemarket, where he has to convince investors that free-to-air television has a future, and Nine Entertainment is the best of them.

Marking Friday's release of research reports by the investment banking managers (UBS, Macquarie, Morgan Stanley and the Commonwealth Bank) that will kick off the $3 billion float of Nine Entertainment, Mr Gyngell spelt out Nine's investment case.

He told Fairfax Media that the media sector was a "challenged and dangerous place" for some fund managers and mum and dads, but: "I believe ours is the best possible space".

His pitch is a departure from the usual management speak. He is not selling the story that Nine has the best business because it has the lowest costs, but rather it has paid up to invest in assets and programs, and this will underpin its future.

"Everything we are doing at the moment is at an all-time content investment high," he said.

So he is sending a clear message that there are no spending surprises lurking around the corner.

This appears to be a swipe at Ten Network, which this week announced new loans aimed at paying for programs.

While Nine's free-to-air competitors have questioned Mr Gyngell's top-dollar acquisitions of sporting rights, including cricket and rugby league and the purchase of Adelaide and Perth station affiliates, he makes no apologies for this spending approach.

It is a rare attitude in business these days that says, invest heavily in content and they will come.

"At Channel Nine I have invested a lot of money in event programming and taken the costs up a lot, and I am not a cheap guy to run.

"I passionately believe in making great content and chasing revenue.

"I don't believe cutting costs is a hard thing to do. It's the easiest thing to do in our business, and you can do it any day of the week, and any mug can do it for you."

It's a view that reflects his belief that there is still life (and money) to be made in free-to-air television, despite its negative industry tag as "old" media.

To try a float of a traditional media asset puts Mr Gyngell in the difficult position of convincing investors that this industry will not be a longer-term victim of fragmentation, and that the worst of the invasion from pay TV is over.

He argues that the background of free-to-air in Australia is very different to other countries, particularly the US. TV in Australia is like TV in the 1980s in the US, according to Mr Gyngell. Without the benefit of premium sport (thanks to anti-siphoning laws) pay TV bumps up against a natural market-share ceiling.

There are plenty of eager eyeball competitors. The Netflix and Hulus of the world will challenge free-to-air. Even free-to-air operators will probably compete using cheap digital models.

"But as broadcasters, we do big bulk programs, and more people watch that," he says. "I don't buy that it's going to deteriorate in Australia like it has in other areas of the world.

"I don't disagree that the advertising market growth curve over the last 20 years is going to be challenged through choices advertisers have in digital products, but television has proved time and time again to be getting its share. Most recent numbers showed that TV is still getting some growth."

Television operators argue that they will not follow the rocky track of print media on a 10-year time delay. This is the story Mr Gyngell and his television competitors at Ten and Seven (which also runs a meaningful print business) have to sell.

"I am extremely confident that free-to-air television will be the biggest game in town. It will not have the growth curve of the last 20 years, but it will definitely have some growth."

This may not be the definition of a business with great growth prospects, but neither is it of one moving backwards.

Over the past couple of years both Nine Network and its arch-rival, Seven, have improved their shares of ratings and advertising.

But they have been given a free kick from Ten Network, which has lurched from one disaster to another.

Nine's biggest gain will need to come from taking share back from the market leader, Seven. This will be hotly contested.